Artificial Intelligence and Blockchain in Accounting: Theory and Practice

This article discusses the uses of artificial intelligence and blockchain in accounting, with examples of their implementation. It also evaluates the arguments made by the author and predicts the changes in financial reporting regulation due to technological advancements.

Running head: FINANCIAL ACCOUNTING THEORY AND PRACTICE
Financial Accounting Theory and Practice
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1FINANCIAL ACCOUNTING THEORY AND PRACTICE
Table of Contents
Introduction:....................................................................................................................................2
1. Artificial intelligence and blockchain and their uses in accounting:...........................................2
2. Use of artificial intelligence and blockchain in accounting by describing in detail one case for
each:.................................................................................................................................................3
3. Personal viewpoint regarding the arguments made by the author:..............................................5
4. Change of financial reporting regulation in future along with technological advancements in
accounting:.......................................................................................................................................6
Conclusion:......................................................................................................................................7
References:......................................................................................................................................8

2FINANCIAL ACCOUNTING THEORY AND PRACTICE
Introduction:
With the increase in digitisation and automation and their impact on more business
processes, the need for mastering emerging technologies increases. This would be critical to
professional success for the accountants irrespective of whether they are working in public
organisations or private enterprises (Byrne, 2018). Two of such technologies that include
artificial intelligence (AI) and blockchain possess the capability of reshaping the accounting
profession. The current assignment would focus on elaborating the concept of the two stated
technologies and their uses in the accounting profession. The second section would lay emphasis
on the use of these two techniques by analysing one case for each in terms of the accounting
profession. The third segment would involve critical evaluation of the arguments made in the
provided journal article. Finally, the assignment would shed light on the possible changes of
financial reporting regulation in future and with technological advancements.
1. Artificial intelligence and blockchain and their uses in accounting:
According to Chan, Chiu & Vasarhelyi (2018), artificial intelligence is a segment of
computer science emphasising the creation of intelligent machines working as well as reacting
like human beings. The computers, in which artificial intelligence is built, are capable of
performing certain activities. These activities include learning, speech recognition, problem
solving and planning. The research related to artificial intelligence is extremely specialised and
technical. For instance, KPMG has integrated IBM Watson for audit purpose and JPMorgan
Chase has been using this technique for minimising the time required to review contracts from
numerous staff hours to mere minutes.

3FINANCIAL ACCOUNTING THEORY AND PRACTICE
On the other hand, blockchain is a technology, which has been developed to enable
transactions engaging the cryptocurrency bitcoin (Dai & Vasarhelyi, 2017). Thus, it is a
transaction ledger stored in a source record list called blocks. All the parties in a blockchain are
provided with unique identifiers and they are versed with the technology of encrypting and
decrypting information communicated with the help of the transaction. The block is used to
record the transaction and all the computers linked with the blockchain could view it. Even
though the money changing hands could be verified, the identifiers help in identifying the
individual parties.
By seeking benefits of time-stamp functionality, the users could trust the accuracy of
records by checking whether there is any alteration of transactions. Moreover, effort to change
blocks in the chain needs update of subsequent blocks and thus, it helps in preventing fraudulent
activities. In accounting profession, the implications of blockchain could be interesting for the
auditors. Since blockchain has automated technology, improved security and real-time
verification, the auditors need not have to devote too much time on verifications, confirmations
and evaluation of particular accounts (Crookes & Conway, 2018). Thus, with the help of
blockchain, audits are less expensive to conduct and they could be performed quickly.
2. Use of artificial intelligence and blockchain in accounting by describing in detail one case
for each:
Artificial intelligence has the potential of extracting key terms and then it compiles and
evaluates the information for conducting risk analysis or other functions. For instance, business
organisations often encounter complexities in generating invoices, making responses to revenue
projections and expense accounts’ status. It is assumed that Company X is facing issues in all the

4FINANCIAL ACCOUNTING THEORY AND PRACTICE
above aspects. In this context, Pegg could be used, which is an application and it is the quickest
and simplest way of capturing and managing business transactions (Drew, 2017). Pegg is an
innovation of artificial intelligence, since it is fast, easy and free to use like sending message to a
friend via mobile phone.
It is further assumed that Company X uses Sage Business Cloud Accounting for
managing its accounting transactions. Pegg has the ability of synchronising all the transactions
with the Sage software. This is because it analyses the probable invoices and it could match the
amount paid to the correct invoice combination. After this, it generates invoice automatically for
depicting short payment, since no human intervention is needed (Drew, 2018). Moreover, Pegg
provides responses to the questions regarding revenue projections and expense status, once the
data is uploaded in Pegg database. Thus, Pegg utilises artificial intelligence for minimising the
time spent on business administration.
In case of use of blockchain in accounting, it is considered that Company A sells
product to Company B for $10,000. This involves the following:
 The record of sales order in the books of accounts of Company A and purchase order in
the books of accounts of Company B
 The record of outward product shipment in the books of accounts of Company A and
inward product receipt in the books of accounts of Company B
 The record of customer invoices in the books of accounts of Company A and vendor
invoice in the books of accounts of Company B
 The record of inflow payment in the books of accounts of Company A and outflow
payment in the books of accounts of Company B

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By using blockchain technology in the supply chain, logistics functions and payments, there
would be simultaneous inclusion of transactions and validation would be made in single
distributed ledger (Issa, Sun & Vasarhelyi, 2016). All the parties could see the current
transaction state with shared pertinent documentation. As the appropriate parties have validated
the transactions already, it becomes possible for the auditors to put their trust in legitimating
those transactions. Moreover, any modification to transaction is recorded and the validators need
to validate it.
3. Personal viewpoint regarding the arguments made by the author:
According to Hood (2018), AI and blockchain possess more opportunities than threats. In
terms of AI, it is believed that AI enables the auditors to dig deeper into data by processing
greater data volumes. However, the role of the accountants is still considered to be critical in
contrast to the machines. In order to operate effectively, there is need to pair the judgements of
the auditors with skills of data science. Moreover, the accountants would ensure their readiness
and they would be able to leverage the opportunities offered on the part of artificial intelligence.
Therefore, it could be stated that the accountants would grow better with the help of artificial
intelligence, as they would provide more value by leveraging technologies.
Blockchain, even though has earned some popularity in the global arena, it is still in
relative infancy with limited applications (O'Leary, 2017). Public blockchains would be present
for real estate records or for provenance of various types of collectibles; however, maximum
blockchains are expected to be private and the organisations or individuals would maintain them
for their personal purposes. The bank account of an individual could be a blcokchain and the
person could have a separate blockchain for interacting with IRS. Similarly, an organisation

6FINANCIAL ACCOUNTING THEORY AND PRACTICE
could keep its books of accounts in one blockchain, communicate with the suppliers through
another blockchain, while sales tax obligations would be managed in another. The levels of local
or state tax authorities could access the final blockchain of the organisation (Smith, 2017).
Blockchain would not eliminate the need for the accountants, as audits would be conducted in a
different manner. The auditors need not have to conduct sampling by waiting near fax machines;
instead, checks would be conducted on the security of keys and pursuance of fraud by reviewing
all the transactions with some help from artificial intelligence. Hence, it could be inferred that
artificial intelligence and blockchain would definitely be useful in accounting profession in
future in combination with the accountants and not separately.
4. Change of financial reporting regulation in future along with technological
advancements in accounting:
The financial reporting regulation would have considerable change in future due to a
variety of reasons. Firstly, the accountants would be using smart and advanced technologies for
improving their conventional working ways and the technologies might substitute the existing
conventional approach (Conway, 2018). The smart software systems would support the trend
towards outsources of the activities and higher usage of social media through advanced
technology would enhance collaboration, involvement with stakeholders, disclosure and wider
communities. Social media would disclose additional data like alternative reporting in
comparison to corporate assurance report and tools would be used by the stakeholders for
interpreting big data. In addition, there would be increase in regulations due to avoidance of
massive tax, money laundering and transfer pricing. When technologies like artificial
intelligence and blockchain would be integrated in the accounting profession, such instances

7FINANCIAL ACCOUNTING THEORY AND PRACTICE
would be minimised and thus, the financial reporting regulations would be more transparent in
future (Zhang, Pei & Vasarhelyi, 2017).
Conclusion:
Based on the above evaluation, it could be stated that both artificial intelligence and
blockchain are gaining popularity in all business aspects and its impact on accounting would
increase eventually with the passage of time. Hypothetical examples have been provided to
depict that these two technologies would help the business organisations to manage its
accounting transactions in an effective manner. However, these technologies do not have the
ability of replacing the accountants; instead, they would enable the accountants in conducting the
audit work with much transparency. Finally, it has been evaluated that the accounting profession
would undergo significant changes with the advancements in technologies.

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References:
Byrne, D. (2018). Introduction. In Contemporary Issues in Accounting (pp. 1-14). Palgrave
Macmillan, Cham.
Chan, D. Y., Chiu, V., & Vasarhelyi, M. A. (2018). New Perspective: Data Analytics as a
Precursor to Audit Automation. In Continuous Auditing: Theory and Application(pp.
315-322). Emerald Publishing Limited.
Conway, E. (2018). The Future of Accountancy—Beyond the Numbers. In Contemporary Issues
in Accounting (pp. 187-195). Palgrave Macmillan, Cham.
Crookes, L. & Conway, E. (2018). Technology Challenges in Accounting and finance.
In Contemporary Issues in Accounting (pp. 61-83). Palgrave Macmillan, Cham.
Dai, J., & Vasarhelyi, M. A. (2017). Toward blockchain-based accounting and
assurance. Journal of Information Systems, 31(3), 5-21.
Drew, J. (2017). Real talk about artificial intelligence and blockchain. Journal of
Accountancy, 224(1), 22.
Drew, J. (2018). Merging accounting with'big data'science. Journal of Accountancy, 226(1), 48-
52.
Hood, D. (2018). Brace yourself for AI & blockchain: There's less threat and more opportunity
in emerging technologies than many think. Accounting Today. 32(1), 1-31.

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Issa, H., Sun, T. & Vasarhelyi, M.A. (2016). Research ideas for artificial intelligence in auditing:
The formalization of audit and workforce supplementation. Journal of Emerging
Technologies in Accounting, 13(2), 1-20.
O'Leary, D.E. (2017). Configuring blockchain architectures for transaction information in
blockchain consortiums: The case of accounting and supply chain systems. Intelligent
Systems in Accounting, Finance and Management, 24(4), 138-147.
Smith, S.S. (2017). Sustainability: How Accountants Can Add Value and Deliver
Results. Management Accounting Quarterly, 19(1), 19.
Zhang, L., Pei, D. & Vasarhelyi, M.A. (2017). Toward a New Business Reporting
Model. Journal of Emerging Technologies in Accounting, 14(2), 1-15.